MMT is right in pointing out that orthodox economics is false. This, though, is only part of the story. Fact is that the WHOLE of economics is false, i.e. the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal economic concept profit wrong. MMT as a Keynesian offshoot is NO exception.
Economics does not satisfy the criteria of science ― material and formal consistency ― and because of this NONE of the economic platforms from the outer left wing to the outer right wing has sound scientific foundations. All of economics is storytelling and a scientific fraud. MMT is NO exception.
Let us have a look at the main arguments.#1
• “All government spending is our income, a government surplus is our deficit (debt) and a government deficit is our surplus (savings). Government spending isn’t just necessary to run our public services it also helps us to increase our wealth.”
This is false. The counterpart of a government deficit is the profit of the business sector or the saving of the household sector or a combination of the two. In the main, it is profit, therefore it is misleading to say that a government deficit ‘helps us to increase our wealth’. “Our wealth” is NOT the wealth of the ninety-nine-percenters but of the one-percenters. Given the household sector's saving/dissaving, it holds Public Deficit = Private Profit.
What has been called an absurdly unequal distribution of income and wealth is the DIRECT result of public AND private deficit spending and the exponential increase of public AND private debt.
• “What neoliberals call government debt is in fact savings to the private sector. This is composed of bonds and guilts which are purchased by the population at large…. The reason they are so popular is because they are seen as the safest form of investment.”
This, of course, is true, except for the fact that government securities are not bought and held by ‘the population at large’ but by the one-percenters. With the promotion of deficit spending, MMT sees to it that the business sector not only enjoys profit but also a risk-free asset and a long-term flow of interest. This flow comes in subsequent periods from the taxation of the household sector and is secured by the taxing power of government.
Patricia Pino sums up: “Macroeconomics is a complex subject.” This is trivially true, and what the general public needs to know is that economists do not understand it.#2 Economists do not even understand profit which is the pivotal concept of their subject matter. Economics is a failed science and MMT is part of it.
#1 For the comprehensive overview and the point-by-point refutation of MMT see cross-references
#2 First Lecture in New Economic Thinking
Related 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and 'MMT’s two shots in the head' and 'Down with idiocy!' and 'Political economics: Who hijacks British Labour?'.
You say: “…, of course, MMTers & functional financiers understand your points, and treat them at length, and explain how the alternative you may be proposing ― no deficit spending? ― is worse. Sorry to put words in your mouth, but that seems to be your position.”
Time to get above the usual kindergarten blah-blah. My argument is NOT about a specific economic policy but that economic policy has NO sound scientific foundations. In other words, economic theory is scientific rubbish ― including MMT. The result is that economists in their bottomless stupidity ruin the economy.#1
So, my position is the same as Napoleon’s: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)
Note that I am not crazed about the deficit or any other MMT policy issue. The point at issue is that MMT policy proposals have NO sound scientific foundations. MMT is materially and formally inconsistent and just as ill-founded as Neoliberalism. Therefore, it is NO alternative to Neoliberalism. Scientifically, it is the same crap in a different political package.
I have refuted the theoretical foundations of MMT point-by-point on this blog.#2 The bottom line is this, MMT lacks the true theory and this is lethal: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
So, whatever MMTers are claiming to do and whatever they think of themselves they are doing does NOT matter. Because the theoretical foundations of MMT are defective and MMTers are in the state of self-delusion, what MMT economic policy OBJECTIVELY amounts to is a wellness program for the one-percenters.#3
It seems that MMT fell victim to the Law of Unintended Consequences: “The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s ‘invisible hand,’ the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, ‘is led by an invisible hand to promote an end which was no part of his intention,’ that end being the public interest.”
MMT is the inverse case: it seeks to promote public interest but ends up with promoting private interest.
#1 Mass unemployment: The joint failure of orthodox and heterodox economics
#2 See cross-references MMT
#3 See also ‘Keynesianism as ultimate profit machine’
#4 The Concise Encyclopedia of Economics
Ralph Musgrave cannot resist the temptation to expose himself again as a brainless blatherer. He argues “… I’ll do him a favour and demolish one of his phrases: ‘The counterpart of a government deficit is the profit of the business sector or the saving of the household sector or a combination of the two.’ The mistake there is the popular assumption that a business’s profit (or the profit of the entire business sector) is equal to the increase in it’s stock of cash. That’s nonsense. A business or the business sector can increase its stock of cash during the year, but still make a loss (e.g. because its stock of assets lose a lot of value because of depreciation or obsolescence, or because lots of its debtors turn out to be no-hopers, which was what happened to banks when they realized the NINJA mortgagors they’d lent to were no hopers.)”
WOW, that is rather big news. If Ralph Musgrave were a little smarter than a fruit fly he would have taken a closer look at the full set of macro axioms.#1 The definition of TOTAL profit says that it is the sum of MONETARY profit/loss Qm and NONMONETARY profit/loss Qn. The latter is not an issue in the present context because MMTers do not even understand the concept of monetary profit.
Nonmonetary profit has been dealt with at length elsewhere.#2
#1 Wikimedia, New axiomatic foundations
#2 See cross-references Profit
(i) You say: “There is a minimal level of understanding of a theory that is necessary refute it. A point-by-point refutation has to be that of the theoretician’s points, not things selected by the ‘refuter’.”
I have NOT selected anything, I have refuted all 16 posts that have been presented by Peter Copper on this blog as the key propositions of MMT.#1
Take notice that MMT is refuted on ALL counts.
(ii) You say: “You seem to be saying that deficits are bad because the money can wind up in the hands of the rich. This is not news & one does not need anybody’s ‘true theory’ beyond educated common sense. This is not a valid criticism of deficit spending.”
I have NOWHERE said that deficit spending is “bad”. I have PROVED that the Keynesian/Post Keynesian/MMT profit/employment/money theory is false.#2, #3
(iii) Do not argue against what I SEEM to be saying but what I AM saying which is easy to check by everybody thanks to an abundance of smart search tools.#4
(iv) Your reference to the trickle-up meme is misplaced. What I have clearly stated is that public deficit spending is, since Keynes, a veritable profit machine.#5 Public and private deficit spending over the last decades explains the extremely biased income distribution which MMTers certainly do not endorse.#6 That there is a logical contradiction in the MMT argument should be plain.
(v) The policy proposals of MMT are based on a provably false profit/employment/money theory and they are propagated by misleading arguments. Assertions like “Government spending isn’t just necessary to run our public services it also helps us to increase our wealth” are actually false with regard to “us” and “ours”. Same with Lerner’s directly contradicting assertion: “We owe the debt to ourselves”.
(vi) MMTers are incompetent scientists. Their policy proposals have NO sound scientific foundations. MMT is soapbox economics just like Neoliberalism. BOTH approaches are materially and formally inconsistent and their proper place is the wastebasket of proto-scientific rubbish.
#1 See cross-references MMT
#2 Unemployment is high because economics is false: period, full stop, end of story
#3 Putting economic policy on scientific foundations
#4 Just enter ‘employment equation’ or ‘Phillips curve’ in the search field (Ctrl F) of the AXEC blog
#5 Keynesianism as ultimate profit machine
#6 Profit and the decline of labor’s nominal share
You are asking: “Why do you keep insisting that MMT is supposed to be based on ‘sound scientific foundations.’ What the hell for, Egmont?”
Since Adam Smith/Karl Marx economics is explicitly defined as science. The general public is year after year reminded of this fact with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. And every economist learns in Econ 101: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins)
Clearly, economics is since 200+ years a self-declared science. Now, science is well-defined since 2000+ years by material and formal consistency: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Fact is: economics is a failed science because economists are scientifically incompetent. Fact is that since Adam Smith economic policy guidance never had sound scientific foundations. Both, orthodox and heterodox economists sell proto-scientific rubbish in the bluff package of science.
You argue: “It’s been clear from Day One that it’s based on accounting and accounting rules, and the US congressional reality that our country creates its own currency, which since 1971 (internationally) has been a sovereign non-convertible currency with a floating exchange rate. That’s not a scientific fact, Egmont, that’s an accounting reality.”
Unfortunately, economists did not even get the elementary mathematics of accounting right in the last 200+ years.#1 What you call accounting reality is one of the worst scientific blunders of all times.
Because economists, including MMTers, continually violate scientific standards they have to be expelled from the sciences. Their proper role is that of clowns in the political circus.
# For details see cross-references Accounting
Thank you for the links.
Of course, I agree with Paul Davidson and you that Samuelson’s ergodic axiom is proto-scientific rubbish like all of Samuelson’s.#1 The point is, though, that Keynes, Davidson, Post Keynesianism, and MMT, too, is proto-scientific rubbish. And this has NOTHING to do with ergodicity/nonergodicity, which, to begin with, does not at all apply to economics, but with profit, which, indeed, is the foundational concept of all of economics. Fact is that Keynes, Samuelson, Davidson, Kelton, Mitchell, Wray, and all the rest of the MMT crowd got profit wrong.
The formal core of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because profit is ill-defined the whole theoretical superstructure of Keynesianism is false. Let this sink in: Keynes had NO idea of the fundamental concepts of economics, that is, of profit and income. Neither have After-Keynesians.
Keynes’ lethal blunder is in the premise Income = value of output. The same blunder reappears in the most used economics textbook: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson and Nordhaus, 1998, p. 392)
Some generations of dull economics students later, the same lethal blunder reappears in MMT: “We have seen that total spending equals total income.”#2
For the rectification of this 200+ years old proto-scientific embarrassment see ‘Macro for dummies’.#3
When Samuelson’s Walrasian microfoundations and Keynes’ false macrofoundations are flushed down the drain and replaced by the correct macrofoundations one gets the Profit Law, the Law of Supply and Demand, and other essential economic relationships.#4 These relationships are SYSTEMIC and because of this Davidson’s ridiculous ergodicity/ nonergodicity pseudo-issue vaporizes with a minuscule puff just like Samuelson’s cargo cultic synthesis previously.
#1 For the detailed arguments just enter ‘Samuelson’ or ‘Davidson’ or ‘ergodicity’ in the search field (Ctrl F) of the AXEC blog.
#2 Peter Cooper ‘Short & Simple 16 – The Expenditure Multiplier and Income Determination’
#3 For the full-spectrum refutation of MMT see cross-references
#4 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
The macroeconomic Profit Law for the pure production-consumption economy in the most elementary form says Qm=−Sm or monetary profit for the economy as a whole is the mirror image of dissaving and has nothing to do with greed or monopoly power or innovation or productivity or risk. In other words, in the pure production-consumption economy profit depends in the most elementary case on the growth of the household sector’s debt.
Now, only if overall profit is greater than zero the business sector maintains or increases employment. This is the minimum condition. If overall profit turns into loss firms go bust and employment decreases. If the losses continue the economy eventually breaks down.
From the fact that profit is the mirror image of growing household sector’s debt follows logically that overall profit turns into overall loss as soon as the household sector starts to pay back the accumulated debt. The economy eventually breaks down because of immanent logical necessity (no crisis and no criminals and no banksters and no exploding real estate or stock market bubble and no revolution is needed) as soon as private and/or public households start to redeem their debt in the aggregate.#1
The macroeconomic Profit Law for the elementary investment economy says Qm=I−Sm or monetary profit for the economy as a whole is given by the difference between business sector’s investment I and household sector’s monetary saving/dissaving Sm. Let Sm for simplicity here be zero then profit depends directly on the GROWTH of the capital stock.#2
This worked fine since the Industrial Revolution but it cannot work in all eternity. The snag is this: if growth weakens or is stopped, overall profit turns into overall loss and the whole economy breaks down.
The challenge as it follows from the correct profit theory is this: how can the growth path be flattened without causing a full-scale economic breakdown?
Because Walrasians, Keynesians+MMTers, Marxians, and Austrians have NO idea until this day what profit is they do not even see that the actual life-and-death question of economics is how to engineer a soft landing on a reasonably high and sustainable plateau of production and employment.
You say: “The only way to address this internal contradiction of pure capitalism is by introducing some socialism into the system by allowing the government to offset the balance of the nongovernment sector.”
This is inaccurate and misleading. What a government sector deficit actually does is to increase overall profit because it holds Qm=(I−Sm)+(G−T) or, if I is falling and Sm is rising then the government deficit offsets the negative effect on profit. To sell the MMT profit push program as socialism is indeed a milestone in new political marketing. Hitherto, it has not been the primary goal of socialism to secure the profits of the one-percenters, at least not officially.
The real issue ― to end unsustainable growth without a breakdown of the economy ― cannot be solved by permanent government deficit spending. This is technically no problem, as MMT correctly points out, but it simply does not work. In order to see this, though, one has to consistently switch from profit- to employment theory.#3 Unfortunately, MMT employment theory, too, is false.
#1 Mathematical Proof of the Breakdown of Capitalism
#2 Squaring the Investment Cycle
#3 Macrofounded labor market theory
I say that MMT got profit theory wrong (just like Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism), and that the axiomatically correct macroeconomic Profit Law reads Qm=I−Sm, and that, for this reason, MMT policy guidance has no sound scientific foundations.
So, MMT is political agenda pushing masquerading as science (just like Neoliberalism, Marxianism, Austrianism, and all the rest). Note, I do NOT discuss MMT policy proposals, I prove that they lack an underlying true theory (just like all the alternatives).
You say: “Right. Kalecki-Levy profit equation. This is the price that MMT economists are willing to pay to fund full employment with a JG. along with progressive social welfare.”
This makes the impression that MMT knows all this profit stuff already, has discussed it at great depth and length and has factored it in.
This is NOT the case. As I have proven, Kalecki’s and Levy’s profit equations are false.#1, #2, #3
The whole Keynesian, and Post Keynesian, and MMT crowd got it wrong. Only one economist got the elementary mathematics of national accounting right: Allais.#4
There is NO greater embarrassment in the history of modern science than economics, and MMT is part of it.
#1 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example and cross-references
#2 Heterodoxy, too, is scientific junk
#3 Rethinking deficit spending
#4 How Keynes got macro wrong and Allais got it right